All customers are not created equal. It is important for every small business to identify its most profitable customers. But not for the reasons you may think.
Deciphering customer profitability can help you grow every facet of your company. More importantly, “You want more customers like your most profitable customers. These won’t just be the customers who spend the most money,” according to MarketingZone.com.
“Some of the customers who spend the most won’t be profitable (they’ll be the ones getting the highest discounts and requiring the most time for support). Your most profitable customers will be people who act like a free sales force for you by referring profitable new customers and acting as brand advocates spreading credible, positive word-of-mouth.”
So how can you get started? We asked entrepreneurs to reveal their best kept secrets on how to identify your best and most profitable customers and here is what they had to say:
1. Continuously analyze customer data.
“Even if you know your 10 most profitable customers, you still can be caught unaware if you do not have some understanding of how changes in your customers’ business will impact your business. A company that has no clue who its most profitable customers are cannot even begin to estimate the damaging impact on their own company when their top customers’ profits decline. The takeaway lesson here is to understand that your top 10 customers will change over time, so it’s up to your management team to continuously analyze customer data to ensure you’re serving the right 10 best customers at all times and recognize that adjustments need to be made to those customer accounts that have fallen off the ‘A’ list.”
2. Predict future revenue with CRM tools.
“Leveraging technology is critical for small business owners. We use Zoho.com, a web based CRM (customer relation management) tool, to manage our client pipeline and predict future revenue. This tool allows you to track activities by company or by individual contact. Its robust reporting makes it easy to see who your most profitable and loyal customers are.”
3. Don’t chase the wrong numbers.
“Chasing the wrong numbers is a mistake we made early on; as a company that is focused on wholesale it seemed only logical to chase after the big accounts. We saw massive growth in 2010-11 pursuing the larger retailers, which required deeper discounts and longer terms. In late 2011 we looked at the numbers and discovered that the core of our business was (and still is) built around specialty retailers and boutiques, with an average order of around $200, with longer buying cycles and higher profit margins. We retooled to better serve those customers and saw immediate results. We exceeded our growth projections for last year and our YTD are nearly double our 2012 numbers.”
4. Track the cost of servicing each client.
“Our company provides online marketing services for small and medium sized businesses. Unlike many of our competitors who charge clients by the hour, we provide services with a set scope of work for a fixed monthly price. Clients really like the focus on results vs. hours, but it does make costing more difficult. To identify our most profitable customers, we use time tracking software and a very detailed Income Statement to accurately track the cost of servicing each client. Management produces monthly reports and we review them with the various departments so that adjustments can be made and issues highlighted.”
5. Become familiar with customer lifecycles.
“Use customer lifecycle behavior analysis to dive into existing customer behavior and identify key profile and behavior characteristics that are predictors for lifetime value. Profile your most profitable customers based on those attributes to ‘tell the customer story’ for your brand. Target acquisition and retention efforts on ‘look-alike’ prospects/customers, those that have the same ‘story’.”
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